I thought that the most disagreeable part of the Bush State of the Union Address was on energy. If you want to reduce gasoline consumption by 20 percent, then join the Pigou club and tax gasoline. If you assume that the long-run elasticity of demand is about 0.2, then you need to double the price of gasoline. So go for a $2.50 tax increase. If that seems too high (as do most members of the Pigou club), then bear this in mind: the $2.50 tax increase is the least costly way to achieve the goal of reducing gasoline consumption by 20 percent.Glenn Reynolds points to a piece in Popular Mechanics that compares the cost of alternative fuels for cars. Electricity comes out the cheapest, even today.

At the average price of 10 cents per kwh, it costs around 2 cents per mile. Electric cars can be recharged at night, when generating plants are under-utilized…

Case Against: Pure electric cars still have limited range, typically no more than 100 to 120 miles. In addition, electrics suffer from slow charging, which, in effect, reduces their usability. When connected to a dedicated, high-capacity recharger, some can be recharged in as little as an hour, but otherwise such cars are essentially not driveable while they sit overnight for charging.

The key to energy diversification is not biofuels, which Reynolds derides as “pork marinated in ethanol.” The key is battery technology.

Or perhaps ultracapacitor technology.

A secretive Texas startup…claims that its system, a kind of battery-ultracapacitor hybrid based on barium-titanate powders, will dramatically outperform the best lithium-ion batteries on the market in terms of energy density, price, charge time, and safety. Pound for pound, it will also pack 10 times the punch of lead-acid batteries at half the cost and without the need for toxic materials or chemicals…

Ultracapacitors have many advantages over traditional electrochemical batteries. Unlike batteries, “ultracaps” can completely absorb and release a charge at high rates and in a virtually endless cycle with little degradation.

Where they’re weak, however, is with energy storage. Compared with lithium-ion batteries, high-end ultracapacitors on the market today store 25 times less energy per pound.

I am skeptical of any secretive company. In Under the Radar, I had harsh things to say about start-ups that operate in “stealth mode.” In my experience, they have a failure rate of 100 %.

By the way, this pointer also came from Professor Reynolds.

Back to batteries: I believe that batteries are the energy technology with the greatest leverage. If a car can run on ordinary electric power, then we have a diversified energy base. We also have a path by which cars ultimately can derive their power from the sun, indirectly via the electric grid.

My guess is that in 10 years we’ll be getting more car mileage from the electric grid than from biofuels.